An Example (Part 9)

Now, let’s do an example using the offer from Paydotcom.com above:
Let’s say you have a daily ad budget of $25.  Also, we know that you get paid a commission of $14.98 for every conversion, therefore you know you need at least 2 conversions to make a profit (2x $14.98= $29.96 – $25= $4.96 profit).  You might want to pull out your calculator to do the math.
Can you answer these questions:

1. What is the most you should spend per ad click if the conversion rate is 2% (meaning that on average 2 people out of 100 will convert)?
   

   Answer:  29 cents. The reason:  with a 2% conversion rate you will need 50 clicks for 1 conversion (or 100 clicks for 2 conversions).  Since you are paid $14.98 per conversion, you should not spend more than 14.98/50= .2996 or 29 cents per click.  (This would allow you to break even… so you should set your cost per click at less than 29 cents to make a profit)  Also, remember that this is just an example, in real life, conversion rates change all the time, so therefore, you could still make a profit if your cost per click was 29 cents and the conversion rate moved to 4%.

2. What is your return on your investment (ROI) if you make 3 conversions and the daily budget is $25?
   

   Answer:  79.76%! (Try making that in the stock market).  The reason:  3 conversions x $14.98= $44.94 in revenue.  $44.94- $25 budget= $19.94 in profit.  Profit divided by Budget gives the ROI…so, 19.94/25= .7976 or 79.76% return on investment!